UN WORLD WATER DAY SETS BACKDROP FOR ‘THIRD WAVE’ OF WATER INVESTING
US$12 trillion to be allocated to spending on Water through 2030,making it the largest component of global infrastructure spending over the next 20 years 1
Wednesday 22nd March heralds the 25th World Water Day and the United Nations’ continuing campaign for freshwater and sanitation. Staged as a means of focusing the World’s attention on the importance of freshwater and the sustainable management of freshwater resources, World Water Day seeks to highlight a specific aspect of freshwater each year, with ‘Wastewater’ the designated theme in 2017. For Dublin-based KBI Global Investors (‘KBIGI’), a pioneer in Natural Resources investing, it is also the perfect backdrop for what Matt Sheldon, Senior Portfolio Manager on the firm’s long-established Water Strategy refers to as Water Investing’s ‘Third Wave’.
“We are”, says Sheldon, “at the front end of the next wave of investing in Water. If you look back at the early 2000s Water spending was driven by the developed market housing boom. After the great financial crisis, we saw Wave 2, driven by Industrial Water – whether it was the energy renaissance in the US, Chinese stimulus or global corporations taking seriously for the first time their responsibilities in addressing their energy and water footprints.
“Wave 3 is driven by infrastructure and policy-led initiatives. We’re going to see US$12 trillion spent on water infrastructure by 2030, as much as in Telecoms and Power. The populism that we are seeing in politics around the World is now flooding the water space, and people are demanding better quality water, no longer content with contamination. In the past politicians knew that the way of maintaining their leadership was the delivery of low-cost water; today their motivation is to ensure they’re not on the front page because they left problems unaddressed. We only need look back a couple of years to the crisis in Flint, Michigan – where cost-cutting measures led to tainted drinking water – to see how media sentiment has changed.”
Increasing commitment to infrastructure spending
A key plank of the case for Water Investing is KBI Global Investors’ view that spending on the water infrastructure of the US has been far too low for too long, and needs to increase substantially – and at KBIGI more than 75% of the portfolio can be classed as infrastructure stocks i.e. companies involved in building, or providing equipment or services for water infrastructure. Increased infrastructure spending will therefore benefit the KBIGI Water Strategy, with Trump’s commitment to infrastructure being particularly supportive.
Trump and infrastructure
“We're going to rebuild our infrastructure, which will become second to none, and we will put millions of our people to work as we rebuild it”, said the newly elected President. He has since published the details of an ‘America’s Infrastructure First’ plan, which is designed to “transform America’s crumbling infrastructure into a golden opportunity for accelerated economic growth.”
Whilst all the noise is about Trump right now, Sheldon notes cross-party political support for extra infrastructural spending; the Democrats have just published their own policy document, ‘A Blueprint to Rebuild America’s Infrastructure’, proposing an additional $110bn spend on the rehabilitation of water and sewer infrastructure.
Water is however a global investment opportunity. The Chinese water market is huge; its commitment to water infrastructure is expected to double that of the US and Europe combined, with India stepping up her own water investment and committed to a number of major programmes.
Water and wastewater treatment plants are amongst the largest of infrastructure projects. With demographic changes resulting in significant amounts of human, industrial and agricultural waste reaching our water supplies, these projects are now essential. Regulation has emerged as a key support to these initiatives as countries look to improve their water quality and restore the water ecology function. In China, for example, pollution from industrialisation has led to more than 70% of Chinese rivers, lakes and groundwater being designated as polluted, leading to an urgent need for wastewater treatment.
On a separate note, the dislocation between water supply and demand is most prevalent in emerging economies, where population growth and urbanisation is most significant. In China, the ‘Chinese South-North Water Transfer Project’ is designed to bring water from the southern region of China (which has water in abundance) to northern Chinese cities. The construction of this enormous project will not be complete before 2050, and will provide opportunities for companies across the water infrastructure spectrum.
The Modi project
India is among the fastest growing markets globally, growing at 12% per annum from 2014-2018. Only 70% of urban households and 30% of rural areas have access to piped water – the level of ‘Non-Revenue Water’ (i.e. that lost in the system) between 30-50% on average, and wastewater treatment low or non-existent in most regions. India is notoriously bureaucratic and project delays are commonplace, but with Prime Minister Modi focused on reviving investment through the introduction of new and more straightforward financing mechanisms, removing bottlenecks and encouraging foreign direct investment, we are seeing some real and meaningful project activity on the ground.
KBI Global Investors’ proven track record
KBI Global Investors has a fully dedicated specialist team of investment managers looking to identify companies that will benefit from the significant water infrastructure spend over the coming years.
The firm established its standalone Water Strategy as long ago as 2000. A high conviction, global, long-only equity portfolio, it invests in 35-50 publicly traded companies providing value-added solutions to meet the vital, global need for water – and the Strategy, one of the first of its kind globally, has delivered strong, consistent returns relative to the broader market since inception, outperforming the MSCI ACWI in 12 of 16 calendar years.
2016 was a tremendous year for the KBIGI Water Strategy, which delivered an excess return vs. MSCI ACWI of +7.3% (USD to 31.12.2016, gross of fees), the portfolio’s infrastructure stocks being the standout performers over the period. The firm believes the multi-year tailwinds specific to global water provide a compelling opportunity given elevated broad market valuations and the stubbornly slow growth environment, and Sheldon believes its portfolio to be well positioned.
The KBI Global Investors Water Strategy was recently approved as compliant with the European SRI Transparency Code by Brussels-based Eurosif, the leading European association for the promotion and advancement of sustainable and responsible investment across Europe.
– ENDS –
1 McKinsey & Company: McKinsey Global Institute McKinsey Infrastructure Practice, January 2013
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NOTES TO EDITORS
- Water Investing
Water is a key resource, which will need significant investment to ensure its adequate provision to a growing global population. Growing demand for fresh water from a rapidly-expanding global population, coupled with unrelenting demand from industry and agriculture, has focused the world’s attention on how we manage our scarce water resources. The KBIGI Water Strategy gives investors the opportunity to invest in companies that are poised to generate significant revenue growth from providing solutions to the growing need to address water scarcity.
The primary drivers of the Water investment theme are:
- Inadequate supply: < 1% of water is available for use
- Increasing demand: growing 40% by 2030
- Increasing regulation and government support
- Increasing investment in infrastructure: $121 trillion required through 2030
- Increasing investment in technology: to enhance infrastructure, increase efficiency and assure quality
Water is essential for feeding the world with nearly 70% of water supply going to agriculture. Industrial use accounts for a little more than 20% of the water supply and further highlights its importance for economic growth. These uses far outstrip domestic water use of a little under 10%, but should not obscure the vital need to provide domestic water as today nearly 800 million people do not have access to clean drinking water and 2.5 billion people lack access to basic sanitation.
As a result, this vital resource has a supply/demand imbalance, which will drive significant investment in solutions over the next two decades in which technology and infrastructure in areas such as desalination, water re-use, filtration, and metering will play a major role. Further, environmental regulations continue to support spending on treatment technologies and testing equipment to encourage compliance with water quality standards.
Whether it is the European Union’s Water Framework Directive, the Safe Drinking Water Act in the US, or China’s water standards, regulation – both economic and environmental – has been a backbone of support for investment in water. While other areas of clean technology saw regulatory support wane during the global credit crisis, the essential need for clean water provided the impetus for continued consistent regulatory support.
An estimated $121 trillion is expected to be allocated to spending on water through 2030, making it the largest component of global infrastructure spending in the next 20 years. As a specialist active manager, KBIGI is well positioned to understand how this capital will be deployed and which companies will provide the dominant solutions to ensure the demand for this most vital resource is met.
- About World Water Day
World Water Day, which falls on 22nd March every year, is about taking action to tackle the water crisis. Today, there are more than 663 million people living without a safe water supply close to home, spending countless hours queuing or trekking to distant sources, and coping with the health impacts of using contaminated water.
The Sustainable Development Goals, launched in 2015, include a target to ensure everyone has access to safe water by 2030, making water a key issue in the fight to eradicate extreme poverty.
In 1993, the United Nations General Assembly officially designated March 22nd as World Water Day. World Water Day is coordinated by UN-Water in collaboration with governments and partners.
Wastewater – UN-Water’s theme for 2017
Globally, the vast majority of all the wastewater from our homes, cities, industry and agriculture flows back to nature without being treated or reused – polluting the environment, and losing valuable nutrients and other recoverable materials. Instead of wasting wastewater, we need to reduce and reuse it. In our homes, we can reuse greywater on our gardens and plots. In our cities, we can treat and reuse wastewater for green spaces. In industry and agriculture, we can treat and recycle discharge for things like cooling systems and irrigation.
By exploiting this most valuable resource, we will make the water cycle work better for every living thing. And we will help achieve the Sustainable Development Goal 6 target to halve the proportion of untreated wastewater and increase water recycling and safe reuse.
- About KBI Global Investors (‘KBIGI’)
KBI Global Investors is a specialist equity manager, offering a range of Global Equities and Natural Resources Strategies. Established in 1980, KBIGI has been managing assets for institutional clients for more than 35 years – public and corporate pension schemes, sub-advisory investors, foundations and endowments, wealth managers, private banks and investment intermediaries included. The firm enjoys an increasingly global client base, and holds mandates in the UK, Europe, North America and Asia. Part of the Amundi Group, KBIGI is headquartered in Dublin, with a sales office in Boston.
Originally focused on the Irish market, managing predominantly domestic balanced mandates, KBIGI is today a specialist institutional asset management boutique.
The firm enjoys significant coverage across the global institutional consultant community, continues to manage pension fund assets for some of Ireland’s largest and best-known corporations, and offers investment services on both a segregated and unitised basis.
KBIGI’s highly experienced teams manage some €9.1bn at 31st December 2016*, the firm boasting an excellent track record for consistent risk-adjusted investment performance over the longer term.
KBIGI is a signatory of the United Nations Principles for Responsible Investment, members of or signatories to the Carbon Disclosure Project, Global Impact Investing Network and UK Stewardship Code (Tier 1 status), and part of a network of investors which support and promote the long-term benefits of sustainable investment within the context of their individual investment processes and fiduciary duties.
KBIGI is headed by CEO, Sean Hawkshaw, and has a headcount of approximately 63 people – the KBIGI management team along with a number of key employees holding 12.5% of the equity in the firm.
* This is the combined AUM of KBI Global Investors Ltd and KBI Global Investors (North America) Ltd as at 31st December 2016.
KBI Global Investors Ltd is regulated by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority in the UK. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. KBI Global Investors (North America) Ltd is a registered investment adviser with the SEC and regulated by the Central Bank of Ireland. KBI Global Investors (North America) Ltd is a wholly-owned subsidiary of KBI Global Investors Ltd. ‘KBI Global Investors’ or ‘KBIGI’ refer to KBI Global Investors Ltd and KBI Global Investors (North America) Ltd.
Portfolio returns are gross of fees in USD. All returns are to 31/12/2016.
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