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3 December 2021

USS increases Thames Water investment

The Universities Superannuation Scheme (USS), has further demonstrated its commitment to UK infrastructure by increasing its stake in Thames Water, the country’s largest water and wastewater company with 15 million customers in London and the South East.

USS has purchased an additional 8.77% of the business from Wren House Infrastructure Management to take its holding to nearly 20%. This will be the largest single investment in the £82.2bn (as at 31 March 2021) portfolio managed by USS’s investment management subsidiary.

This further builds on USS’s UK investments which stood at 45.8% of the scheme’s total assets at a time when the government has been calling on pension schemes to invest more into the country’s economic recovery.

USS first became an investor in Thames Water in 2017, attracted by the opportunity to support the long-term investment needs of the business. This matches well with the outlook for pension schemes which need to take a long-term investment outlook in order to pay pensions for decades to come.

While challenges remain, including ageing infrastructure and impact of climate change, Thames Water has performed well over the last year. With a strengthened board under CEO Sarah Bentley, and a new, experienced executive leadership team in place the company will target reducing leaks, investing in its infrastructure, improving customer service and working towards Net Zero.

Leak detection has already improved after major upgrades but the current five-year regulatory period includes plans for £10.7bn of investment. This covers upgrades to sewage works as well as connecting the network to the Thames Tideway tunnel. Meanwhile, the company has also rolled out a new billing system as well as offered more support to customers with affordability issues.

At the same time, Thames announced a detailed roadmap to achieving Net Zero by 2030 and carbon negative figures by 2040 through a combination of continuing to reduce emissions and increasing the amount of renewable energy it generates. Coupled with this, Thames has also developed resilience plans to help the company cope with the expected impacts of climate change.

Simon Pilcher, CEO of USS Investment Management, said: “We are delighted to be making this further investment in Thames Water, a critical supplier to millions of people every day. Under its new management team, the company is juggling many priorities, such as Net Zero, that will require the kind of decades-long investment time horizon, as well as stewardship skills, that we can offer. We look forward to supporting on the next stage of the company’s journey.”

Mike Powell, Head of the Private Markets Group, said: “Thames Water has some key challenges to overcome in the coming decades. Real progress has been made but customers and the general public quite rightly expect more. This will require hard work and further substantial long-term investment. USS is ready to support Thames on this journey but it can only be achieved with all the company’s stakeholders working together, creating the right environment to deliver the investment that everyone wants.”

Ian Marchant, Chairman, Thames Water said: “This increase in investment is testament to the company’s commitment to develop a long-term strategy to ensure a resilient water and waste service for generations to come. With a new experienced leadership team ready to turnaround the business, we are determined to become a water company our stakeholders, customers and employees can be truly proud of. Being innovative is important to our success and it’s something we’ve been particularly focused on alongside investing in the company’s infrastructure, customers, and our responsibility to the natural environment. We look forward to working with USS, alongside our other shareholders, to support the executive team to ensure Thames Water becomes a high performing company.”