Investors are putting more pressure on businesses that waste water as droughts spread throughout the globe and are attempting to identify winners from a small group of specialised listed companies that are trying to solve the issue.
A lack of fresh water has drawn the attention of authorities from Kenya to California plus nearly half of Europe and given millions of people a new perspective on the stressed status of the planet.
In light of this, a group of investors with almost $10 trillion in assets under management announced on August 16 that they intended to intensify their pressure on boards to properly manage the important resource and might vote against the directors of lagged corporations.
The motivation for doing so is obvious: research conducted in May by environmental disclosure platform CDP & Planet Tracker revealed that listed corporations might experience losses of at least $225 billion due to water-related hazards.
Dexter Galvin, global director of corporations & supply chains for CDP, stated that these are not long-term occurrences anymore; they are currently taking place.
For instance, Toyota (7203.T) shut down operations at a facility in China’s Sichuan province last week due to a power shortfall brought on by the drought.
According to the United Nations, 2.3 billion people currently reside in water-stressed countries. As a result, several asset managers have launched equity funds to capitalise on the growing investor interest in contributing to a solution.
23 water funds were established over the past five years, according to global Morningstar Direct data, and as of the end of July, they had an aggregate asset value of $8 billion.
As water difficulties have gotten worse, according to David Grumhaus, Jr., portfolio administrator for the $812 million Virtus Duff and Phelps Water Fund, there has been a spillover impact.
People do worry about water and our money when the leading news story is that boats can’t cross the Rhine River and Germans won’t get all their supplies, he said.
Common holdings include the American Water Works Company Inc (AWK.N), a utility; Xylem Inc (XYL.N), a water technology company; and Georg Fischer AG, a Swiss industrial company that focuses on the secure transfer of water.
Analysts and fund managers noted that few listed firms are solely devoted to this commodity or so-called pure plays.
There are, according to Simon Gottelier, co-manager of the incredible $282 million Thematics Water Fund, roughly 25 to 30 investable water utilities, and a few water-technology companies worldwide.
Everyone wants to act on the issue of water, but using public equity to do so is challenging, according to Morningstar’s Blue.
Therefore, managers search for a wider pool of businesses that include water segments together with other business units. Many of them concentrate on smart irrigation, desalination, and pollution avoidance.
Manager of a $9.2 billion Pictet-Water Strategy Cedric Lecamp claimed that his company had located 360 businesses with “significant exposure to the water subject.”
Danaher Corporation (DHR.N), which holds water quality operations but generates the majority of its revenue from the life sciences and diagnostics sectors, was the fund’s biggest holding as of the end of July, per company filings.
Given the variety of businesses developing water solutions, water fund managers deemed this diversification outside of pure-play utilities not only essential but also potentially advantageous.
Justin Winter, who is the co-manager of the well-thought $7.3 billion Impax Water Strategy, there hasn’t been a huge burst of new companies offering solutions in the water sector.
However, the outlook for the current businesses is essentially brighter than it has ever been.
As clients want to increase water efficiency, Albert Cho, Xylem Senior Vice President said the company anticipates revenue growth of about 5% through 2025. Cho deemed it important for the water business, because customers are frequently underfunded local utilities, even though that growth rate is not particularly high for a technology company.
