WATER WORLD
The problem with water is that there is not enough of it. Supply is finite and only around 3% of it is fresh water. Of the 3% that is fit for consumption, 70% is underground and 29% is frozen in the polar caps. This leaves around 1% for personal and commercial use. Of this, 70% is used in irrigation, 20% by industry and 10% for domestic use, according to the UN. This is why the world is starting to acknowledge that with rising populations there could be a huge problem on the way. In 2015, the World Economic Forum named water crises as the top global risk ahead of infectious diseases and food shortages.
O’Halloran agrees that in terms of scale of severity water is the world’s top threat. “You cannot survive without water,” he says. “You can’t survive without food either, but so much water is required in food production that without it there would not be enough food.”
So water investment is not just about utilities. It is a broad church with KBI identifying 157 companies in the investible universe. These are mainly technology and infrastructure-related businesses.
When looking for an investment idea in this market, think about the cradle-to-grave cycle of water from when it falls as rain to when it is consumed, advises Bruce Jenkyn-Jones, Impax Asset Management’s co-head of listed equities and co-manager of the firm’s water strategy.
This could be companies involved in the storage and movement of water as well as its use through irrigation. Water also needs to be measured by meters and treated before a utility sends it to your taps. Then there are leaks in the pipes carrying the water, which need to be identified quickly to cut losses. This is a big issue. It is estimated that around half the water supply in developing world cities is lost through leakage.
So there are a lot of diverse business models, but there is also huge diversity in the end markets, too. Agriculture, residential, utilities, oil and gas, paper and food are just a few.
“So if you are investing in water you are not investing in a narrow piece of the economy,” Jenkyn-Jones says. “You are exposed to everything because everybody uses it.”
This is why water shortages hamper economic growth, with the UN claiming that three in four jobs globally are dependent on water.
“When you put pressure on the planet you put pressure on the economy,” Ward says. There are so many areas of the economy which cannot operate or develop without water. You need it to grow food, to get oil and gas out of the ground and keep offices functioning.
“An investment in water is an investment in the whole economy,” Impax’s Jenkyn-Jones says.
