“Water, water everywhere, and not a drop to drink,” wrote the 18th century poet Samuel Taylor Coleridge in The Rime of the Ancient Mariner.
He didn’t know the half of it.
In National Geographic’s special April issue, devoted completely to water, it is estimated 1.8 billion people within the next 15 years will live in regions of severe water scarcity.
For such reasons, water sustainability is likely to break through in 2010 as a mainstream issue for investors as growing pressures combine to force investments in water infrastructure and technology of up to $1 trillion every year between now and 2030, said Jens Peers, lead portfolio manager of the Calvert Global Water Fund (CFWAX) and head of Eco Funds for the Dublin-based KBC Asset Management International Ltd., speaking at a press briefing in New York Thursday.
As the demand for safe water outstrips supply, more financial advisors and investors are sensing a liquid market in the making, according to Peers. “Water is already known by many investors as ‘blue gold,” he said.
As evidence of a global water scarcity, the United Nations estimates that two-thirds of all nations will become water stressed by 2050, with close to two billion people living in countries facing absolute water scarcity
The Calvert briefing coincided with a United Nations-affiliated Global Compact’s CEO Water Mandate meeting in New York, bringing together public and private sector companies to address what some now refer to as the next global crisis.
Peers outlined several major trends growing demand for water: aging infrastructure around the world, the rise of government oversight, and the “China factor,” bringing increased investor attention to water sustainability.
Two-thirds of China’s cities suffer from water shortages and rapid economic growth is placing huge strains on supply, he noted.
The Calvert Global Water fund was launched in October 2008 and uses sustainability criteria in selecting firms to which to invest and pursues a wide reaching shareholder advocacy effort to encourage water use by publicly traded companies, said Bennett Freeman, senior VP of sustainability research and policy at Calvert. Criteria for the fund is consistent with social, environmental and governance criteria Calvert uses to measure value and risk in every investment, he said.
Peers says the fund, which has nearly $16 million in assets, invests in three main sectors of the water cycle: water and wastewater utilities; firms that engage in water infrastructure projects, and water technology companies. A niche area is water metering companies.
Conversely, the fund avoids water bottling companies because of problems associated with recycling and pricing.
Approximately 80% of the fund is invested in pure play companies that are wholly focused on water. One-third is U.S. firms, one-third European companies, with the remaining one-third in the Far East, including Japan, according to Peers. The fund has 47 company holdings with market caps of at least $400 million. Altogether, KBC Asset Management has identified 105 water related companies as investable, he said.
Peers highlighted four fund holdings – Consolidated Water, Manila Water, Mueller Water Products Inc., and Kurita Water Industries Ltd. as examples of diverse companies that are well positioned to thrive as the world grapples with water issues.
--Consolidated Water is a water utility and water technology company based in the Caribbean, benefitting from population growth, economic growth and increasing efficiency/power production costs through technological advances, which will help boost profitability.
--Manila Water is a regulated water utility providing water treatment, distribution, sewerage and sanitation services. The company’s primary service area is the East Zone in Manila. The firm has successfully increased water access from 24% to 99% of the population and increased availability from 16 hours a day to 24 hours a day.
--Mueller Water Products Inc., based in Atlanta, GA, manufactures a broad range of water infrastructure and flow control products for use in water distribution networks, treatment facilities and fire protection systems.
--Kurita Water Industries Ltd., is a Tokyo-headquartered global provider of water treatment chemicals and an operator of specialized industrial water treatment plants.
Julie Frieder, Calvert’s senior sustainability analyst, said the firm believes access to water is a fundamental human right. Its advocacy approach includes engaging companies to promote better transparency and disclosure through shareholder resolutions and direct dialogue with senior managements.
Calvert assesses investment risk taking into consideration such factors as physical risk, reputation risk of the firm, and litigation and regulation risk, she said.
“Disclosure is a pivotable point and with that in mind, management systems and new strategies can be developed,” Frieder said. “Water risk, however, is an emerging science. We don’t know yet how water risks will affect businesses’ bottom line. It’s fascinating, a little scary, and it’s urgent.”