The next chapter in sustainability: weakening UK rules and regulation will impact enterprise value

Recent commentary suggests that ESG may be losing relevance in the UK. This narrative misses the core issue: ESG is fundamentally about stakeholders holding business to account for adverse impacts on people and the environment. While regulatory requirements and political narratives shift, stakeholders' expectations remain, and they may turn to litigation as a tool to address perceived gaps or row-back of oversight.

Companies operating in a regulation-light / litigation-heavy environment that understand and proactively manage these risks will find opportunities to enhance long term value. But for those who equate lighter regulation with lower risk, the future will be uncertain and with potential for significant impacts on enterprise value.

A current UK example is the issue of water pollution. In July 2025 the Independent Water Commission ("IWC") reported after the most comprehensive review since the 1980s. In this report, the IWC laid bare these shortcomings and proposed radical change. Calling for a "fundamental reset" of the water sector in England and Wales, the IWC highlighted numerous issues caused by fragmented, overlapping, and ineffective regulation (read our previous article: To 'cut sewage pollution in half by 2030' the UK Government seizes on the Cunliffe Report to restructure environmental law). In his speech on the final report, Sir John Cunliffe, Chair of the Independent Water Commission, explained that "it is clear that the Environment Agency has not had the resources, the people, skill, technology to hold the water industry and other sectors that impact the water environment to account".¹ Issues noted in the report itself include "duplication", "gaps" and "capacity and capability challenges" which affect regulatory oversight, and an "inflexible and overly prescriptive" legislative framework which has led to a cautious regulatory approach.² Without strong oversight from regulators and effective enforcement of permits and regulations, private litigation is the only way to fill the enforcement gap and hold polluters accountable.

For example, on 7 October 2025, it was reported that the "biggest claim ever brought in the UK over environmental pollution in the country" was filed at the High Court.³ This claim was launched by nearly 4,000 claimants in private law against Avara Foods Limited ("Avara Foods", one of the largest poultry producers in the UK), Freemans of Newent Limited ("Freemans", its subsidiary) and Welsh Water for allegedly causing "extensive and widespread pollution" across the Rivers Wye, Lugg and Usk. This follows a landmark July 2024 Supreme Court ruling, which confirmed that private law claims of nuisance or trespass can be brought against water companies even if there has been no negligence or deliberate misconduct.⁴

The claimants include local residents living alongside the rivers, business owners dependent on tourism and river-based activities, and recreational users. They contend that over recent years, the rivers have suffered serious environmental degradation, with pollution triggering harmful algal blooms and eutrophication - these harm river life and produce bad smells, in turn severely impacting businesses, recreation, tourism and property values.

In the current case, none of the defendants would be permitted to discharge polluting substances to these rivers without an Environmental Permit ("EP"). Discharges in the absence of an EP, or in excess of discharge limits set out in the EP, would be a criminal offence. When a person is convicted of a criminal offence, the court has the power to also order compensation for those who have suffered harm.

The common law has always provided a form of recourse for those who have suffered harm from pollution, but in the UK we have relatively few such cases. This is primarily because, to date, a strong regulatory regime has been deployed to prevent harm to the environment, and to remediate where damage nevertheless occurs, and has responded proportionately to punish those who fail to meet their statutory duties. Industry knew where it stood, and those who suffered harm were compensated. That 4,000 claimants are resorting to the common law to seek recourse suggests a regulatory framework and enforcement context that is not meeting stakeholders' expectations. It also reflects broader scrutiny of the water industry's regulatory system and a trend of escalating litigation risks where regulatory gaps exist.

The outcome of the legal case against Avara Foods, Freemans, and Welsh Water is pending. However, it is crucial for companies to understand the broader context surrounding this case, especially the litigation risks that give rise to an unpredictable and more costly business environment.

For industry, this type of litigation heightens the costs of doing business. Effective regulation provides clarity and predictability, with consequences clearly set out in the Sentencing Guidelines and obligations concretely identified for Boards to understand and commit to meet. Litigation risk, in contrast, introduces uncertainty, with potentially higher financial exposure and more complex and protracted legal processes.

In an environment where executive responsibility is under increasing scrutiny, Boards should be proactive in managing environmental performance, and prioritizing strong internal controls, transparent reporting, and prompt responses to any violations. As the UK water industry's regulatory landscape is poised to shift following the Cunliffe Report, it is essential that companies and their legal advisors stay informed and adapt to protect both businesses, and the environment.

Abigail Teasdale (White & Case, Trainee Solicitor, London) contributed to the development of this publication.

_{1 Sir Jon Cunliffe: Speech on the Independent Water Commission final report - GOV.UK
2 Independent Water Commission Final Report, pages 157, 159, 142.
3 River Wye pollution prompts UK's largest environmental lawsuit - BBC News
4 The Manchester Ship Canal Company Ltd v United Utilities Water Ltd No 2 [2024] UKSC 22 [The Manchester Ship Canal Company Ltd (Appellant) v United Utilities Water Ltd (Respondent) No 2]}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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