A record £90 million fine has been imposed on Southern Water after pleading guilty to over 6000 illegal discharges of sewage and 51 breaches of environmental law. The illegal discharges occurred between 2010 and 2015 (over multiple sites), a total of 61,704 hours. To give this some context, this is the equivalent of 7 years continuous illegal discharge. This follows a fine of £2 million imposed on Southern Water in 2016 in relation to the pollution of beaches in Kent with untreated sewage.
Steve Panton, regulatory partner says:
"This decision will be of interest to all regulated businesses as they face the combined pressures of increased regulation, increased oversight by regulators and increased scrutiny of corporate behaviour".
Pressure from the Regulator
Following its largest ever criminal investigation, the Environment Agency successfully prosecuted Southern Water for pollution offences and multiple breaches of environmental law. The Environmental Agency's investigation found 'very serious widespread criminality' by the company. The Category 1 offences were found to be caused by deliberate failings.
This is not the first time Southern Water has been hit with record fines. In 2019 following an Ofwat investigation Southern Water was fined £3 million and paid £123 million in rebate payments to customers for serious regulatory failings and deliberately misreporting its performance. The Ofwat investigation arose from the same circumstances investigated by the Environment Agency in the recent decision. And it is not over yet. More recent spills by Southern Water are currently under criminal investigation.
The investigations by Ofwat and the Environment Agency show the scale of regulatory oversight of companies' performance, corporate governance and compliance. A trend that is likely to continue.
Pressure from the courts
Mr Justice Jeremy Johnson sentencing the company said:
"Each of the 51 offences seen in isolation shows a shocking and wholesale disregard for the environment, for the precious and delicate ecosystems along the North Kent and Solent coastlines, for human health, and for the fisheries and other legitimate businesses that depend on the vitality of the coastal waters.
“Each offence does not stand in isolation. It is necessary to sentence the company for the totality of the offences to which it has pleaded guilty. But even that does not reflect the defendant’s criminality. That is because the offences are aggravated by its previous persistent pollution of the environment over very many years.”
Francesca Hodgson, regulatory legal director, says:
"In 2017, Thames Water received what at the time was record breaking fine of over £20 million for polluting the River Thames and surrounding areas with millions of tonnes of raw sewage. The unprecedented fine in this case of over four times this amount demonstrates the Environment Agency's appetite to pursue these cases and the UK courts' willingness to impose increasingly significant fines for non-compliance with environmental law, particularly for repeat offenders. Fines of this level and the risk of criminal sanctions should put environmental and regulatory compliance at the top of every board's agenda".
Pressure from investors and customers
The £90million fine will impact on company profits with shareholders bearing the cost of the fine. Davina Watson, practice development lawyer, says:
"This prosecution highlights the scrutiny placed on companies environmental performance and the increasing importance of Environmental Social Governance (ESG) to UK regulators, investors and customers".