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Thematic investing

Water: invest in solutions to the global challenge

Water: invest in solutions to the global challenge

June 2017

Water is an essential natural resource -and demand is rapidly increasing

Identifying opportunities across the water industry

Our Water strategy invests across all areas of the global water industry, with a particular focus on water supply, water technology and environmental services. As the role of private companies in the management of the human water cycle increases, long-term investment opportunities will abound.

1. Water infrastructure

The private water supply sector consists of the supply and storage of drinking water. By 2050, up to 4 billion people across the world could be living under ‘severe’ water stress, up from 1.2 billion today1. Economic growth is exacerbating the water shortage as it boosts personal wealth, leading to increased consumption of products that require more water to produce, such as animal protein. For example, producing a kilogram of beef requires 15,000 litres of water -six times more than is needed to produce the same amount of rice2.
water number people growth
Reference: Envisager, 2015

Despite this looming issue, governments are increasingly unable to maintain supply due to tight budgets and ageing infrastructure. This means that private companies will play an ever-more important role throughout the human water cycle, especially in North America and Central & Eastern Europe, where they are expected to increase their market share by more than 10 per cent between 2013 and 20253. Other regions, such as South America and Asia, require up to USD 14 trillion of investment by 2030 to secure their water supply. There will thus be countless opportunities for companies involved in innovative water supply solutions, such as water recycling and desalination4, to profit.

2. Water technology

  • Water treatment providers
    The water technology sector consists of companies developing the tools and systems to improve the efficiency with which we use water. For instance, as much as 75 per cent of the world’s available freshwater supply is unsafe for consumption due to contamination or pollution5. Governments can enact measures to safeguard water sources from pollutants, but it is private companies involved in the development of innovative filtration systems, such as permeable membranes or UV filtration, that will provide solutions to these issues.
water infrastructure
Source: Pictet Asset Management
  • Preventing leakage
    In developing countries, more than 45 million cubic metres of water6 are lost through leaks every day. The cost of improving existing public infrastructure globally is predicted to exceed USD 20 trillion between 2005 and 20304. Companies producing innovative water technology solutions, such as next-generation sensors and monitoring equipment that can increase the efficiency of water usage and help avoid wastage through leaks, represent compelling investment opportunities.
  • Irrigation
    With 70 per cent7 of the world’s available freshwater used to support agricultural production, governments are now tackling the wasteful use of water in this sector, such as through the fines California has imposed on those who irrigate their crops in daylight hours during droughts. This focus on waste is creating opportunities for companies making advances in agricultural water technology, such as drip irrigation, which only intermittently wets the soil that is closest to the crop, and thus provides higher moisture levels while using less water.

3. Waste management

There is growing awareness, especially within developing countries, about the need to deal with the water supply problems arising from improper solid waste disposal. In China, it has led to nearly 60 per cent of the country’s underground water and a third of its surface water being classed as ‘unfit for human contact’8.
water china water contamination
Reference: Goldman Sachs Research
The Chinese government is determined to improve this situation, with its 2015 ‘Water Ten Plan’ putting in place tough targets on polluting industries to provide ecological and environmental protection9. With industrial wastewater treatment in China reaching around 90 per cent penetration, the focus will shift to tackling the rise of domestic waste output10. Companies operating in the environmental services sector and providing solutions to waste water collection and its treatment are predicted to benefit.

Tap into the most fundamental resource of all

Water is an essential resource for life – no one can live without it. But despite being renewable, it is also finite. What’s more, global challenges such as urbanisation, population growth and climate change, are putting existing water resources under increased stress. This means that the need to secure the current water supply, and increase its capacity through new technology and services, will be a major theme over the years to come – one that benefits from trillions of dollars of investment. Companies able to provide solutions to the global water challenge are likely to represent attractive opportunities for investors for several decades.