Water- and oceans-related investment opportunities span from infrastructure investment to waste collection and freshwater treatment, water utilities, plastic recycling and alternatives. (UBS)
Despite freshwater being both critical and scarce, most industrialized countries built their water mains and supply infrastructure in the early part of the 20th century, and have not invested extensively in upgrading them since. The average lifespan of water pipes is 50–100 years, depending on what they’re made of and how much pressure they handle. Such aged infrastructure means that, on average, utilities lose 10% to 30% of water from leakage in developed markets and up to 40% in emerging markets (OECD).
This is not just a problem for freshwater, but also sewage leakage, e.g., sanitary sewer overflow (SSO). The Environmental Protection Agency estimates at least 23,000– 75,000 SSOs occur per year in the US alone. A larger global population increases not only the overall consumption and demand for water but also food demand, and food production is heavily dependent on water, with agriculture accounting for 69% of global freshwater demand (FAO).
For oceans, problems arise from overfishing (80% of global fish stocks are either fully or over-exploited) or pollution from untreated waste water or virgin plastic pollution (some 8 – 10 million tonnes of plastic are estimated to enter oceans every year).
Water- and oceans-related investment opportunities span from infrastructure investment to waste collection and freshwater treatment, water utilities, plastic recycling and alternatives. See our longer-term investment themes Waterscarcity, Blue Economy, and Circular Economy for additional detail.
More tactically, in the near term our global sector strategists have become more positive on the industrials sector, a significant part of the theme’s opportunity set, and the theme has a small- to mid-cap tilt.
Investor takeaways
- Water is critical to global ambitions: from feeding a growing population through agriculture or fishing, to making advances in computing, AI, or mining to name a few. Yet, global freshwater infrastructure is in dire need, making freshwater scarcer, and oceans are increasingly polluted and overfished.
- We believe that companies that can provide solutions to the above challenges will benefit over the longer term, as outlined in our longer-term investment themes on Water Scarcity,Blue Economy and CircularEconomy.
- Over the tactical horizon, our global strategists are positive on small- and mid-cap companies as well as industrials, both of which include companies that overlap with these themes. ESG engagement strategies with a focus on the themes as well as smaller companies can provide additional opportunities for impact while positioning tactically.
Main contributors: Amantia Muhedini, Sustainable and Impact Investing Strategist; Michelle Laliberte, CFA, Thematic Investing Strategist
For more, see Perspectives: Investing in water, cement and cocoa price surge , 5 April, 2024.
