Infra decisions: why water cannot solve water’s problems

The UK’s water companies proposed spending billions on nature-based solutions (NBS) in their last five-year spending plans. We will be lucky to see a tiny fraction of that number actually get spent on nature. Jyoti Banerjee gets behind the data to ask why infrastructure fails the nature and resilience test.

Since the founding of North Star Transition, I had the opportunity and privilege to meet Mike Haigh on several occasions. Mike was the CEO of Mott MacDonald, the engineering company which became a partner of ours early in our history. He sadly passed away earlier in 2025.

I received the news of Mike’s death the day before he and I were due to meet for our next partnership meeting.  Mike’s deep expertise in infrastructure helped me gain insight on the nature failures within the water industry – at the core, how the sector has often mismanaged natural systems and underused nature-based solutions in addressing pollution, resilience, and supply challenges.

Here are some lessons I learned about infrastructure and the public sector, primarily through my conversations with Mike, and other friends in the industry:

• We see a rigid application of statutory obligations without taking the broader picture into account

• Cost efficiency analyses always bias the outcome towards grey infrastructure

• Infrastructure operators lack the skills and capacity to implement nature-based solutions (NBS) – ask an engineer to solve a problem, and they will come up with an engineering solution, not a nature-oriented approach.

These issues seem to afflict all sorts of public sector operators and regulators. Mike’s view was that the Government Major Projects Portfolio (GMPP), worth around £800bn of spending, is usually seen in terms of benefits to a single sector. Many of these projects are high profile and risky – a deadly combo for those who are tasked with delivering them efficiently and promptly. Keeping these projects inside a single sector or department seems like the simplest way of minimising complexity and guaranteeing success.

Yet, almost all the major projects in the government's portfolio have impacts across multiple sectors, and their benefits will accrue across sectors and domains. If nature-based solutions, as one example, were to be seen as a shared activity across water, farming, environment, construction, transport and energy, we would have a much larger positive impact on nature, and each of the NBS projects would be much more likely to deliver their hoped-for benefits.

Mike’s judgement was that taking a cross-sectoral approach to infrastructure could reduce a third of the investment costs for a project, while accruing significant benefits. I imagine this is why Mike was so keen on North Star Transition’s multi-sector approach to our Transition Labs.

This push to cross-sector collaboration is not the view of marginal lunatics. The disconnect between ambition and delivery is equally underscored by the recent Cunliffe Review, an independent review of the water sector which called out the sector’s bias towards single-outcome engineered solutions and the lack of coherent, cross-sector strategy for nature-based options. The review also found that overlapping regulatory requirements and short-term planning cycles push water companies to default to grey infrastructure, sidelining upstream and nature-based projects that could deliver wider environmental and societal benefits over time.

To unlock the true value of nature-based solutions, Cunliffe recommends holistic, long-term planning—coordinated not just within the water sector but across farming, local government, and environmental bodies—alongside regulatory reforms that allow for genuine integration and innovation in water management.

Case in point: Water sector spend on nature

So how does this perspective help us decode the actions of, say, the UK’s water companies who proposed spending billions on nature-based solutions in their last five-year spending review, and are likely to only get to a tiny fraction of that number? It’s an example of deep failings in the way we organise and manage our infrastructure.

Consider this scenario.

The UK’s water companies produce plans outlining their intended activities, the investments they hope to make, and their service improvements. Imagine that these plans need to show the impact their activities will have on customer bills. These company strategies, road maps and action plans need to demonstrate that they are complying with the regulations that apply to them, particularly those relating to protection of the environment.

So far, none of this is fictional. Water companies across the UK produce such strategy plans every five years. The last time this was done was in 2024 and the plans developed for that period – Price Review 24 (PR24) – will be in place until 2029. Of course, the development of these plans takes quite a while and the PR29 train, which will put in place the next set of plans, is just leaving the station at this point.

OFWAT, the water regulator, reviews the proposed PR24 plans regarding the ambition, deliverability and alignment of the plans with environmental priorities and statutory requirements. The Environment Agency and DEFRA contribute to OFWAT’s review by exploring regulatory compliance and cost benefits to customers. They also avoid double funding and overlap across base and enhancement expenditures, assessing the evidence base for the actions and the understanding the certainty relating to their outcomes.

The figures relating to the proposed spend on nature by each of the water companies is not public, but industry insiders tell us that the proposed spend on nature in the PR24 plans initially lay in the region of £10bn. Over a five-year period, this would represent around 10% of the industry’s spending plans, which eventually topped out at £103bn across the sector.

Such a spend might seem a small fraction of the plan, but context is key. When faced with regulatory compliance issues, the UK’s water companies seem to have one creed: in engineering we trust. Water may have some kind of relationship with nature, but grey infrastructure is the water industry’s way of building confidence in being able to deliver its plans. Nature, it seems, is far too unreliable, takes too long to get in gear, and it is difficult to apportion blame for failure on your suppliers.

The kicker is that nature almost always fails those important economic value tests. If turning a valve now gives you immediate benefit, while nature may take five years to get its act together, those cost-benefit and net present value curves will always sink a nature-based action.

Unsurprisingly, the planned activities to use nature-based solutions took a real hammering in the PR24 review. The final determination for the 2024-29 period was that water companies received the go-ahead for £3.3bn spend on NBS. Yes, the figure is way down on the original £10bn, but this level of spend would represent a manifold increase on previous NBS spending in the water industry.

If it was actually delivered.

The PR24 determination is not the end of the NBS story. The water companies now have to carry out their planned actions and go through what they call “optioneering”, which involves asking the question: what is the best way to implement the actions that are in their plans? If NBS turns out to be less cost-efficient than grey infrastructure – yes, those economic tools like net present value and cost-benefit are brought out again, and nature gets hammered again – then just build grey infra. If budgets tighten, then non-statutory projects are the first casualties. Industry insiders estimate that we will be lucky if the water companies actually spend 10% of the NBS budget plan.

Without nature, we stand no chance of dealing with the climate crisis, the biodiversity crisis, the health crisis, etc etc. At a time when the entire nation needs every opportunity to allow nature to put its best foot forward, somehow, we often engineer the worst outcomes.

Let’s say that at every level in the PR24 review process, people made the best decisions that they could make, given their understanding of the task given to them and the tools available to them. Let’s give them the benefit of the doubt. They mean well in doing the best they can. Yet, we can ask a valid question: why would a £100bn action plan on water only have room for a few hundred million spent on nature?

Would Mike Haigh do things differently? I did not have the chance to ask him this directly, but I can infer a few lessons from our conversations:

·       Build sandboxes to trial innovative approaches

·       Shift out of prescriptive rules to performance-based learnings

·       Include whole life costings in our analyses, covering long-term maintenance, carbon and biodiversity impacts and other co-benefits, such as health and wellbeing

·       Use multi-criteria analysis, particularly factors impacting resilience, not just financial metrics

Ultimately, Mike supported community co-design, involving local stakeholders early to ensure that the solutions proposed are context sensitive, supported and pragmatic. Again, you can see why he and I had such common ground for our conversations.

The bottom line is that the problems facing our infrastructure operators in general, and the water industry in particular, are not just of their own making. Many other actors play a role in shaping and deepening the problems faced. The water industry can be a leader in committing to working with nature, and helping other infrastructure operators work with nature.  But it needs to get outside its own silo.

For all of our sakes, we need nature first whenever we talk about infrastructure.

This blog was prepared using the materials developed by the North Star Transition team in its work on Mainstreaming Nature-based Solutions, an OFWAT Innovation-funded programme involving 22 partners. North Star Transition leads a funding and finance workstream in this programme.