Asset Management

Capital needs of water industry represent a compelling investment case


Thomas Trsan

ESG & Impact Investing Specialist, Senior Investment Manager

Meet Thomas

One of the most erroneous beliefs of the developed world is that water is a free and plentiful resource.

In fact, water scarcity is rampant. In 2020, 2.2 billion people had no access to clean drinking water and it is estimated, that in 2025 3.5 billion people will live in water-stressed areas. Africa is most affected and is closely followed by Asian countries such as India. It is projected that 700 million people could be displaced by water scarcity by 2030.

Water contamination exacerbates the water scarcity issue. 4.2 billion people do not have access to safe sanitation services.  This is a severe public health issue as 1.8 billion people drink contaminated water. Every two minutes a child dies due to a diarrheal disease caused by contaminated water and poor sanitation.

Water is in dire need for development, innovation and financing. For this reason, water is set to attract increased attention this year from those investors who are actively seeking out high-potential areas of development that most urgently require capital.

Clean water access and water-efficient technology solutions are most needed

In order to solve the most pressing issues, infrastructure and solutions that increase access to clean water and sanitation and water-efficient technology solutions, such as smart water metering and satellite-based water leakage detection, are mostly needed. This is because we face on the one hand, decreasing water supply due to climate change as a result of changing rainfall and evaporation patterns. These are driven by global warming and squandering due to depletion and pollution of ground water sources as well as water leakages as 46 billion liters of treated water worldwide are lost every day.  On the other hand, we are facing increasing water demand as growing urbanization progresses and higher water consumption continues to increase due to improving standards of living. It is expected that global demand for fresh water will exceed supply by 40% by 2030.   

Water pioneers

The French company Veolia is a pioneer in the water sector with a long history. The company was established in 1853 as Compagnie Générale des Eaux by imperial decree with the goals to irrigate the countryside and supply water to French towns and cities with its first contract to supply water to Lyon. Today, Veolia controls all water cycle stages such as resource management, production and delivery of drinking water and industrial process water, collection, treatment and recycling of wastewater and the design and construction of treatment and network infrastructure. The company uses artificial intelligence in several areas as e.g. managing water networks, monitoring and optimizing water consumption.

Itron is a US technology company founded in 1977 providing handheld computer-based electronic and automatic smart meter reading systems for water, electric and gas utilities. It helps water providers to efficiently manage their networks transforming them into smart water networks by optimizing distribution operations and leveraging solutions like hydraulic modeling software, pressure management and pressure sensing. Their analysis software product improves operational visibility, minimizes leaks, increases cathodic protection, streamlines pressure management, reduces labor costs, optimizes network operations and proactively improves the customer experience. These outcomes help to identify, prioritize and take action to reduce non-revenue water (NRW) for both real and apparent water losses in the distribution network. The company also introduced Itron Idea Labs where they explore new possibilities for effective water, energy and smart city management. 

Georg Fischer is a Swiss company producing long-standing cast iron fittings dated back to the end of the 19th century and thereby creating the basis of today’s division GF Piping Systems. Today, it is a leading supplier of piping systems for the safe and reliable transport of liquids and gases. It provides long lasting corrosion and maintenance-free solutions for water distribution by offering customized (plug and pay, pre-fabricated) installations. In addition, Georg Fischer has a comprehensive system offering of pipes, fittings, valves and the jointing technology to improve water quality.

Bubble risk is manageable

Given that the sector is likely to attract sizable amounts of investments, there is concentration risk – at least if investors are focused solely on a specific industry, such as water utilities companies. In order to minimize risk, investors can diversify across themes such as water extraction and storage, water infrastructure as well as water efficiency. Further diversification can be achieved across regions, companies with global and domestic market exposure, company sizes (small-, mid- and large caps) and styles (growth or value-oriented). Adding companies that also have exposure to health care, renewable energy or waste management besides the water business also mitigates concentration risk.