The water and utilities sector are somewhat accustomed to volatility and change, and that remains the case today. 

The sector is under pressure to reduce carbon footprints, necessitating investments in clean energy and sustainable practices to meet national net-zero goals.

The global shifts of the past few years have also highlighted how critical it is for water and utilities companies to focus on resiliency.

In 2025, Victorian water corporations will need to navigate several emerging challenges beyond their routine operations. Here are the top five trends RSM has identified for the water and utilities sector based on professional services currently being delivered for several water corporations and utilities companies:

1. Continuing urgency of cybersecurity

Like it or not, companies across the water and utilities value chain are becoming digital companies, and with that comes more opportunities for cybercriminals to compromise businesses. This has contributed to a shifting view on the value of cybersecurity for water and utilities companies; once a cost centre that largely focused on reducing risk, mature cybersecurity programs have become a source of competitive advantage.

Water and utilities corporations play a key role within critical infrastructure globally, providing essential services that people, companies and countries depend on—this also makes them the target of nation-state attackers and cyber warfare. As we’ve seen in recent years, successful cyberattacks on critical water and utilities companies can have a crippling effect that spreads quickly. One example was the online bill payment system service degradation, and theft of personally identifiable information at Veolia North America last year.

According to the 2024 RSM Middle Market Business Index special report on cybersecurity, 28% of executives said their company experienced a data breach in the last year. Thirty percent reported having at least one ransomware attack or demand in the previous 12 months, a small decrease from 35% last year, but a 7% increase from 23% two years ago.

Water and utilities corporations —and any third parties they work with—need to raise the bar on protecting themselves in this new world where workers, machines, supply chains and organisations are becoming ever more digitally connected. While water and utilities corporations may not have vast troves of personally identifiable information, ransomware attacks can still be costly to operations. Understanding which critical information and processes need protection from potential cyberattacks—and taking action to put those protections in place—will be increasingly important.policy documents

2. Digitisation and the rise of AI

The adoption of smart water and energy management systems and digital transformation initiatives is crucial for operational efficiency and real-time monitoring.

As the water and utilities sector evolves, it faces new pressures and opportunities, especially from the ongoing energy transition and the digitisation of processes. To remain competitive and resilient, water and utilities companies are increasing their adoption of automation in business and operational processes, providing improved efficiency, reliability and safety.

Analytical artificial intelligence (AI) technologies, including machine learning, have come front and centre as companies digitise their business with use cases ranging from the back office and cybersecurity to field operations and process optimisation. Water and utilities corporations can benefit from the lessons learned and investments made by early AI adopters—typically major banks and financial services companies—to chart their own adoption journey. To take full advantage of AI, water and utilities corporations should understand their existing capabilities, determine how to manage new risks and challenges, and collect and refine the data—something water and utilities corporations have historically struggled to do—that will inform AI technologies.

Water and utilities companies—and any third parties they work with—need to raise the bar on protecting themselves in this new world where workers, machines, supply chains and organisations are becoming ever more digitally connected.

3. Policy/regulatory shifts

This year brings not only new opportunities but also important updates to regulatory frameworks that shape how we approach drinking and recycled water management. The Safe Drinking Water Regulations (Vic), the regulatory framework for drinking water is set out in the Safe Drinking Water Act 2003 and the Safe Drinking Water Regulations 2015. These regulations are due to expire to expire in July 2025, potentially leading to updated compliance requirements. The Department of Health is proposing to remake the regulation. A discussion paper was put out with submissions due by 17 December 2024. This could have significant changes for the water drinking water is regulated in Victoria, the regulations cover the following:

  • Water Sampling Localities: Guidelines for establishing water sampling localities and the information required in proposals.
  • Risk Management Plans: Detailed requirements for managing risks to water supply, including the development and implementation of risk management plans.
  • Water Quality Standards: Specific parameters and limits for various water quality indicators, such as Escherichia coli, total trihalomethanes, and turbidity.
  • Auditing and Reporting: Obligations for regular auditing of risk management plans and reporting of water quality information to the Department of Health.

Water and utilities companies need to understand how to take advantage of these opportunities. This will be especially important as businesses navigate challenges around capital cost and availability, increased scrutiny around carbon emissions and other ESG issues, evolving qualifications for clean/renewable water and utilities credits, and power grid strain from electrification and AI growth.

4. Net Zero Emissions Targets and Mandatory Climate Reporting

As industries across Victoria navigate the effects of rapid growth in clean energy technologies, and as the state faces warmer, drier conditions alongside more extreme rainfall events, adaptation to safeguard the health and resilience of our water systems and natural environment is critical. Companies in the water and utilities sector need to understand the implications of the climate transition for their operations. 

Stemming from the Climate Change Act 2017, it is no surprise that Water is one of the 7 seven systems that are determined to be vulnerable to the impacts of climate change and essential to the State Government’s resilience, necessitating the development of sector-based Adaptation Action Plans (AAPs).

The Victorian water sector has publicly committed to ambitious greenhouse gas (GHG) emissions reduction targets:

  • 42.4% reduction by 2025
  • 93.7% reduction by 2030
  • 100% (net-zero emissions) by 2035.

While emissions reduction is a critical focus, other climate-related risks and opportunities must also be considered and integrated into governance frameworks, strategic and operational planning, and capital investment decisions.

With the release of the Australian Accounting Standards Board’s (AASB) Australian Sustainability Reporting Standards, AASB S1: General Requirements for Disclosure of Sustainability-related Financial Information (a voluntary standard) and AASB S2: Climate-related Financial Disclosures (a mandatory standard effective for annual periods beginning on or after 1 January 2025), water and utility companies will face increased requirements and stakeholder expectations for transparency around Climate Transition and Action Plans (CTAPs). This includes clear disclosure of actions being taken (or not taken) to address climate-related risks and opportunities across short-, medium, and long-term time horizons, as well as disclosure of performance against targets.

Whilst the implementation of climate reporting (including AASB S2) within the broader Victorian public sector is a jurisdictional policy decision for Victoria, the Victorian Government has been active in this area, having published a voluntary whole of government-level climate disclosure statement in September 2022. climate

The Department of Treasury and Finance (DTF) Victoria and the Department of Energy, Environment and Climate Action (DEECA) are currently in the process of considering the Victorian approach to AASB S2, having regard to existing reporting requirements, user needs and cost/benefits among other things. 

5. Supply chain shifts

Many aspects of the water and utilities supply scramble that started in 2022 continue. While delays and cost increases from the pandemic are easing, a variety of complicated factors continue to affect water and utilities companies. 

Australia's water infrastructure is aging, necessitating significant capital investment to ensure long-term water security. Climate change, population growth and changing community expectations are also expected to drive increased capital expenditure on water assets, with a continued push for a resilient, diversified and sustainable water supply.

Ongoing supply chain constraints continue to be experienced, with increased competition and investment in infrastructure projects across the water and utilities sector and competing sectors, placing pressure on materials and resources. 

Engaging more local and regional contractors and suppliers of goods and services can mitigate these risks, lessen reliance on a limited number of suppliers, support local economies, and enhance community relationships. However, managing a larger and more diverse contractor base requires strong procurement governance and contract management processes. Therefore, it will be important to have in place strong policies and frameworks, centralised management tools, consistent performance monitoring and reporting processes (including ongoing audits and spot checks, especially for high-risk activities) and clear guidance, documentation, and templates.

Water and utility agencies should also be open to collaborative contracting models that involve early market engagement, risk-sharing mechanisms, incentivisation or an alternate approach that provides improved risk management and early problem-solving (e.g. Alliance Contracting / Early Contractor Involvement).  

 

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.

HAVE A QUESTION ABOUT RISK ADVISORY?

  GET IN TOUCH