On World Water Day, KBI Global Investors sets out the immense challenges ahead for water conservation--and explains how sustainable investing can make a difference.
It is the ultimate contradiction: water is invaluable, yet free. Without water, manufacturing stops, foods fail to grow, the economy crashes and ultimately, life ceases. It is a tough concept to get your head around, but when we pay for water, we are, with very few exceptions, paying for its treatment and transportation.
The water itself is free. Only in its absence or during periods of scarcity does this value-price contradiction become readily apparent. As Benjamin Franklin said, writing in ‘Poor Richard's Almanack', "when the well is dry, we know the worth of water".
Franklin's observation highlights a critical point on World Water Day (first designated by the UN General Assembly on 22 March 1993 and held on the same day each year), with 2021's theme, ‘Valuing Water', turning the spotlight on the escalating global water crisis.
If appreciated only in its absence, perhaps the real value is not in clean water itself but in the people and organisations assuring its reliable supply; in other words, the value is in the value chain.
This value chain, says Matt Sheldon, Senior Portfolio Manager on the KBI Global Investors' Water Strategy, "requires major investment to serve a growing global population, increased industrialisation, continued urban migration, changing consumer demands and contaminant remediation." A large part of the investment is, says Sheldon, "simply to fix what breaks", and it is breaking at an increasing rate due to age, manifested climate change, and land subsidence. "To value water properly, we as a society must invest in it."
KBIGI has been investing in water through its dedicated Water Strategy since 2000. "We don't buy water low and sell water high," said fellow Senior Portfolio Manager, Catherine Cahill. "Rather, we invest in companies across the value chain, ensuring the reliable provision of clean water. This diverse group of global companies serving municipal, industrial and agricultural customers represents a valuable and unique investment opportunity set; they provide solutions which are helping us to build a resilient, sustainable water value chain across the globe."
From KBIGI's vantage point, the value chain continues to strengthen, with water companies rising to the challenge, adopting technologies that enhance sustainability and improve the customer experience.
They are, for example, offering more innovative solutions in the areas of treatment and reuse to allow companies and utilities to navigate a world strained ever more frequently by climate change. The pandemic has highlighted the value of digital integration, with advanced analytics and remote monitoring and controls helping to efficiently find and address problems rapidly.
The value proposition, said Sheldon, "is undeniable to the end user", with a materially positive impact to society. "As the world emerges from lockdown and policy makers all over the globe look to prioritise stimulus spending, it is worth highlighting the significant value to be found through investment in water's value chain."
A recent MSCI ESG Research study looked at 122 funds which explicitly include the water theme in their investment objective. Just 16 funds were found to have an exposure to sustainable water solutions of 10% or above, based on the weighted average of the fund holdings' revenue. (MSCI consider 10% or above as representing high to very high exposure). KBI Global Investors were identified as managing two of the top five funds.
