World Water Day beckons for ESG investors - KBIGI

Jonathan Boyd
clock
World Water Day beckons for ESG investors - KBIGI

Amidst the Coronavirus crisis, the UN's World Water Day on 22 March is set to focus investors on the initiatives and opportunities available from the likes of UN Sustainable Development Goal 6 - Clean Water and Sanitation, suggests KBI Global Investors.

Held anually since 1993, this year's theme is linking water and climate change. KBIGI, which has been investing in the water industry since 2000, says it sees seven key water investing trends as it enters a third decade of investing in the theme.

"Investors are increasingly shying away from carbon footprint heavy industries such as oil, gas and mining - agitating for companies to reduce their exposure to fossil fuels - and seeking alternative opportunities in the field of renewable energy such as wind and solar," the manager says.

"But water also has an important role to play in addressing climate change, water companies working with communities, farmers, utilities and industry to adapt to and mitigate against climate risks.  They offer solutions to increase the resiliency of water infrastructure, improve the reliability of services to the community, reduce water and energy consumption, increase crop yields and support disaster relief efforts - all of which contribute significantly in sustaining economic growth and public health."

Among the ongoing trends it sees this decade include:

  • Climate Crisis crescendo - Water companies will work alongside core stakeholders to provide alternate water supply sources and address stormwater management strategies, this to increase resilience in the face of rising seas, more droughts, more floods and more extreme weather events.
  • Smart Water matures - Water companies are actively electrifying and networking their analytics on plumbing, hydrants, pumps, meters, boilers, water treatment technologies and irrigation equipment.  Remote monitoring and controls help with predictive maintenance, lowering input costs, improving outcomes and pre-emptive alerting.  This is a "win-win" according to KBIGI's Catherine Cahill, co-manager on the KBI Water Strategy, including better business for the water companies and more efficient operations for customers, which, among other benefits, helps address increasing water affordability concerns.
  • Battle for the water consumer - Consumerism is about to enter the water space and this will drive two main responses: water utilities will need to develop rapid responses and closer relationships to their customer base at the same time as residential water treatment business models ramp up their efforts to bring water treatment solutions into the home.
  • Infrastructure boom - You can see it in the management commentaries, organic growth and backlogs of the global consulting engineers - an infrastructure boom is underway; however, the phasing of spend means projects can take a long time from conception to completion, and that means the spending will transition from the smaller engineering phase to the larger construction works and technology implementation phase well into the 2020s.
  • Reverse a decade of industrial rationalisation - After a decade of restructuring, few industries are sitting on excess capacity.  In addition, changing trade patterns have driven a desire for a more diverse qualified supplier base and shorter supply chains.  This has the potential to lead to a more normal pace of industrial capacity growth going forward, which will drive demand for industrial water solutions.
  • Resumption of the roll-ups - Unlike the ‘consolidator phase' of the 2000s, in which large multi-industry companies dipped their toe into water, it is likely that we are going to see the focused water companies themselves buy up interesting, highly fragmented spaces.  We are already starting to see this happen in waterworks distribution, residential water treatment, industrial water treatment and US utilities.
  • Rise of India/Africa - Just as China rose from a small factor in the water industry to a huge force over the last 10-15 years, KBIGI believes the same will be true for India and Africa over the coming decade.  Both geographies have a population of about 1.3 billion apiece and have significant needs to address clean water and proper sanitation issues.  Both regions are notoriously difficult to work in due to bureaucracy and corruption, but growth is nevertheless likely to be robust.

Cahill added: "We are set to see the scene shift away from being reactive to climate change towards instead being more proactive, as the social and financial costs of being vulnerable and prone can exceed the costs of addressing the problems after catastrophe strikes. Policymakers are increasingly supportive at a time when water problems are becoming more challenging.  With the underlying targets of the UN SDGs mostly ending in 2030, we are optimistic about the decade ahead for a focused water investing strategy."

KBI Global Investors Water Strategy Update from KBI Global Investors on Vimeo.

 

Jonathan Boyd
Author spotlight

Jonathan Boyd

Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope.