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BLOG: Investing for cleaner water

Paloma Kubiak
Written By:
Paloma Kubiak

It’s not often my seven-year-old daughter and I are writing about the same things. Usually, she has all the fun making up stories about unicorns, while I’m thinking long and hard about how to make bond investing interesting…

But all that changed this month, when she came home from school talking to me about the UN’s Sustainable Development Goals.

The 2030 Agenda for Sustainable Development

This was adopted by all United Nations member states in 2015, providing a shared blueprint for peace and prosperity for people and the planet. It includes 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all countries – developed and developing – in a global partnership.

My colleagues and I have looked into each individual SDG to consider how investors could help. From zero hunger to quality education and climate action to life on land, we reveal the companies and funds doing their part and assessed how successful each goal has been so far.

SDG #6: Clean water and sanitation

My daughter’s project was SDG #6: clean water and sanitation. Its aim is to achieve universal and equitable access to safe and affordable drinking water for all by 2030.

In addition, it aims to achieve access to adequate and equitable sanitation and hygiene for all, with special attention going towards women and girls and those in vulnerable situations. It has eight targets in total, encompassing themes like reducing pollution, increasing water-use efficiency, and protecting water-related ecosystems.

Water: A scarce resource

Water is required across all sectors of society – to produce food, energy, goods and services. But despite all the advances made in other areas of our lives, billions of people around the globe still live without safely managed drinking water, sanitation, and hygiene services.

My daughter explained to me how lucky she was to be able to get water straight from our kitchen tap, when children of her age in other countries had to walk for miles every day to find safe drinking water.

Over the last century, global water use has increased at more than twice the rate of population growth. Many water sources are drying up, becoming more polluted or both.

So, the situation in some parts of the world is only going to get worse. It’s estimated that 700 million people worldwide could be displaced by intense water scarcity by 2030*, and 20 countries could be experiencing water shortages by 2040*.

What can we do to help?

When something is in scarce supply you either need to consume less, recycle more, or, in the case of water, make the unusable, usable.

Many people assume that water shortages are due to individual wastefulness: running the water while you brush your teeth, for example, or taking long showers. And certainly, reducing our own personal consumption can help.

But globally, domestic use of fresh water accounts for only 3.6%* of consumption. The majority (92%*) goes to agriculture and 4.4%* to industrial uses. Individual habits are still important, but they’re not the whole picture. That’s where investors can step in.

Precision agriculture

Precision irrigation is one of the innovations aiming to cut the use of water in agriculture and reduce the amount of pesticides that will in turn cut water pollution. New sensor-based technology is being used to determine exactly when crops need water.

Kubota, a holding in Baillie Gifford Japanese Income Growth fund, is one example. The Japanese agricultural manufacturer has not only introduced autonomously driven tractors and combine harvesters but will work in concert with the ‘Kubota Smart Agri System’, a cloud based agricultural management service that visualises agricultural data, to provide precision agriculture, for the perfectly calibrated fertilisation and watering of crops.

Filtering and reusing

Water conservation is also one of the underlying themes of IFSL Marlborough Global Innovation fund. The team told us about Evoqua recently – a provider of water treatment products and services to some of the largest organisations in the world, in industries ranging from pharmaceuticals to food and beverage and semiconductor manufacturers.

“Evoqua helps organisations filter and reuse vast amounts of water used in their industrial processes,” the team said. “It also provides a system to enable water companies to remove PFAS, which is essentially a ‘forever’ chemical for drinking water supplies. These chemicals are used in the production of fast-food wrappers, non-stick pans and firefighting foam, but also find their way into the water supply and have been linked with health issues such as cancer.”

Fixing the leaks

David Harrison, manager of the Rathbone Greenbank Global Sustainability fund, also highlights the growing opportunities in the US. “We believe businesses that are helping to fix and improve US water infrastructure are particularly interesting at the moment,” he said. “Up to 30% of water is still lost in the system and there is a clear need for sustained long-term investment in newer technologies and greater efficiency. Water investment is arguably less cyclical too, so this segment of the market could be more resilient in a weakening growth environment.

“There is also increasing focus on improving water safety, with the potential for stricter regulation on contaminated water. Many of the companies in this space enjoy strong market share and barriers to entry are quite high. Valuations have become more attractive since the start of the year, which presents an interesting long-term opportunity.”

This fund also invests in Evoqua, as well as Badger Meter, which is one of the leaders in industrial water meters in the US. Its products help cities improve the efficiency of the water system.

Transforming lives

Mike Sell, manager of Alquity Indian Subcontinent fund told me how the company supports progress on UN SDG 6 both through its investment process and holdings, as well as through its Transforming Lives Foundation.

“We do not invest in any high water usage company (e.g., beverage manufacturer) that does not fully disclose its water usage or conservation levels to us,” he said. “We see this as the bare minimum and then engage further to identify their plans for water conservation and supply security. Many traditional industrial sectors can use very significant levels of water or produce waste that can pollute natural water courses. We prioritise those companies that minimise this impact.”

Closer to home

Closer to home, Thames Water allows my daughter to drink straight from our tap, and this is a holding in M&G Corporate Bond fund.

Ofwat’s Water Breakthrough Challenge has just awarded the company £1.5m to drive innovation and efficiencies within the water sector. Thames Water will work in partnership with water companies, universities, and government organisations, to provide innovative solutions to some of the challenges facing the water industry including extreme weather events, maintaining, and improving ageing infrastructure and protecting the environment.

The projects include trialling pipebots – robots to carry out inspections in pressurised sewage pipes to help prevent bursts and pollutions- and creating a reliable weather impact modelling and forecasting system which will help water companies forecast weather events beyond 10-14 days to 4-6 weeks.

*Source: Global Water Institute (2013) Future water (in)security: facts, figures and predictions
**Source: TED Talk (Dec 2018) Are we running out of clean water?

Juliet Schooling Latter is research director at FundCalibre